CMS finally codifies the 60-day Parts A and B overpayment return rule

CMS codified the longstanding responsibility of providers and suppliers to report and return Medicare Parts A and B overpayments. Specifically, the Final rule requires health care providers and suppliers receiving funds under the Parts A and B programs to report and return overpayments by the later of the date that is 60 days after the date an overpayment was identified, or the date any corresponding cost report is due. The Final rule also clarifies when an overpayment is identified, the required lookback period for overpayments, and the methods available for reporting and returning identified overpayments to CMS. The new regulations are effective March 14, 2016 (Final rule, 81 FR 7654, February 12, 2016).

Statutory basis. Section 6402(a) of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), which created a new section 1128J(d) of the Social Security Act, requires a provider or supplier who has received an overpayment to report and return the overpayment to the HHS Secretary, the state, an intermediary, a carrier, or a contractor at the correct address, and to notify the respective recipient of the overpayment in writing of the reason for the overpayment. Section 1128J(d)(2) requires that an overpayment be reported and returned by the later of: (1) the date which is 60 days after the date on which the overpayment was identified; or (2) the date any corresponding cost report is due, if applicable.

Potential liabilities. Section 1128J(d)(3) specifies that any overpayment retained by a provider or supplier after the deadline for reporting and returning an overpayment is an “obligation” (as defined in 31 U.S.C. §3729(b)(3)) for purposes of the federal False Claims Act (FCA) (31 U.S.C. §3729). Therefore, even without this Final rule, providers and suppliers were subject to potential FCA liability, civil monetary penalties, and exclusion from federal health care programs for failure to report and return an overpayment. Even with the issuance of this Final rule, providers and suppliers will continue to be required to comply with current procedures when CMS, or its contractors, determine an overpayment and issue a demand letter.

CMS twice proposed, but did not finalize, rules that would have amended its regulations to codify this overpayment return responsibility (63 FR 14506, March 25, 1998; and 67 FR 3662, January 25, 2002). On February 16, 2012 (77 FR 9179), CMS published the Proposed rule upon which this Final rule is based.

Overpayment identification. Under the Final rule, a provider or supplier is deemed to have “identified” an overpayment when they have or should have, through the exercise of reasonable diligence, determined that they received an overpayment, and quantified the amount of the overpayment. CMS believes this standard provides needed clarity and consistency for providers and suppliers on the actions they need to take to comply with requirements for reporting and returning of self-identified overpayments.

In an interview with Wolters Kluwer, Robert L. Roth of Hooper, Lundy & Bookman, P.C. took a slightly different view. Roth believes “the clarifications regarding ‘identified’ are a mixed bag—somewhat helpful but potentially costly to providers.” For example, Roth said, “while is it helpful to have additional clarification regarding the time for investigation and quantification, CMS provides no basis for its conclusion that a ‘total of eight months (six months for timely investigation and two months for reporting and returning) is a reasonable amount of time, absent extraordinary circumstances.’” Moreover, Roth points out “the Final rule expects provider compliance activities to be not only ‘reactive . . . in response to receiving credible information about a potential overpayment,’ but also ‘proactive . . . to monitor claims,’ with limited guidance about the metes and bounds of that expectation.” Roth concludes, “satisfying that expectation for smaller providers may mean hiring additional staff or contracting for additional compliance services.” It is unclear to Roth what CMS’ legal authority is for that expectation.

Lynn M. Adam of King & Spaulding LLP believes “providers and suppliers that file claims under Medicare Parts A and B will find it helpful that the overpayment clock is not triggered until the amount of the overpayment is ‘quantified.’” As a result, according to Adam, “so long as a provider exercises reasonable diligence to investigate and quantify the overpayment, the report and refund deadline will now be easier to calculate.” Adam cautions, however, that because “CMS also expressed the view that a timely investigation should be completed within six months from receipt of credible information about an overpayment, that timeframe could be difficult to meet depending on the circumstances.”

Lookback period. The Final rule requires that overpayments must be reported and returned only if a person identifies the overpayment within six years of the date the overpayment was received. According to Roth, it was important that CMS “reduced the [proposed] lookback period from 10 years to six years, which allows providers to use all approved mechanisms for refunding overpayments, such as the adjustment claim process.”

Methods for reporting and returning overpayments. Under the Final rule, providers and suppliers must use applicable claims adjustment, credit balance, self-reported refund, or another appropriate process to report and return overpayments. This will preserve CMS’ existing processes and its ability to modify these processes or create new processes in the future.

Suspension of deadline. The Final rule provides that the deadline for returning overpayments will be suspended when:

the HHS Office of Inspector General (OIG) acknowledges receipt of a submission to the OIG Self-Disclosure Protocol or CMS acknowledges receipt of a submission to its Voluntary Self-Referral Disclosure Protocol. In either situation, the suspension will remain in effect until (1) a settlement agreement is entered with the OIG or CMS; (2) the provider or supplier withdraws from the OIG Self-Disclosure Protocol or the CMS Voluntary Self-Referral Disclosure Protocol; or (3) the provider or supplier is removed from either of the protocols.

a provider or supplier requests an extended repayment schedule. In this situation, the deadline will remain suspended until CMS, or one of its contractors, rejects the extended repayment schedule request or the provider or supplier fails to comply with the terms of the extended repayment schedule.

Other industry concerns. Roth points out “although fundamentally about overpayments, the scope of this Final rule is vast and touches on compliance plans, Stark, kickbacks, appeals, reopening, limitation on liability, use of sampling, Medicare secondary payer, and more.” Roth concludes that while “the Final rule pretty much addressed the issues in the Proposed rule, one particularly unsatisfying aspect . . . is the short shrift that CMS gave to provider concerns about its narrow definition of the ‘applicable reconciliation’ processes provided by law that would avoid the creation of a report and return obligation under this rule. The definition of such reconciliation processes that cause an overpayment to fall out of the ambit of the rule did not change between the Proposed and Final rule, over significant provider objections.”

Adam is concerned that the Final rule “does not clarify the nuanced distinctions that exist in the overpayment rules for different federal programs.” She points out “CMS has not issued overpayment rules for the Medicaid program,” despite the fact that “the law requires Medicaid overpayments to be reported and returned by the same deadline, and there are still questions about when a Medicaid overpayment is ‘identified.’”

Provider/supplier costs. CMS projects that the time and effort necessary for providers and suppliers to identify, report, and return overpayments as set forth in this Final rule will result in an annual cost of between $120.87 million and $201.45 million. CMS’ mid-range projection is an estimate of $161.16 million.

Benefits. According to CMS, the benefits of this Final rule include ensuring compliance with applicable statutes, promoting the furnishing of high quality care, and the protection of the Medicare Trust Funds against fraud and improper payments. CMS admits that the potential financial benefits of this Final rule from the standpoint of its effectiveness in recouping overpayments are not easily quantifiable, because it does not have sufficient data on which to base a monetary estimate of recovered funds.

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